Non-dues Revenue Is Key in Current Economy

Fitness clubs all around the country are trying to find ways to stay profitable in this recession, and one of the ways they are doing so is through ancillary, or non-dues, revenue. Miramont Lifestyle Fitness, Fort Collins, CO, is no exception.

Miramont owner Cliff Buchholz, who took over the first of his three Miramont clubs 30 years ago and has been in the industry since he opened his first club in 1965, has seen a wide range of trends in the industry through the years. He says in the past, fitness club owners relied on shiny, new equipment to lure members into their clubs.

"I think the industry has changed the model," Buchholz says. "The days when you opened up the club and had all that equipment, I think those days are gone. I think the direction is going toward wellness and lifestyle management."

With that in mind, Buchholz is now focusing his clubs on a variety of wellness programs that produce non-dues revenue. The programs include Silver Sneakers for seniors, a weight-loss program, a healthy back program and a lifestyle nutrition program. A program for diabetes is expected to begin in the coming months, Buchholz says.

At one of the Miramont clubs, 42 percent of total revenue is non-dues revenue, Buchholz says, with the other clubs producing around 30 percent and 15 percent non-dues revenue, respectively.

"We'd like to get them all around 40 percent if we can," Buchholz says.

Many veterans of the industry, like Buchholz and Alan Schwartz, chairman of Chicago-based TCA Holdings (Midtown Athletic Clubs), are strong believers in non-dues revenue.

"Non-dues revenue programs serve a dual purpose," Schwartz says. "On the one hand, they produce a bottom line as a department of their own. But more importantly, they involve activities that form a bond and an allegiance between the member and the club. And in so doing, increase retention rates."

Joe Cirulli, owner of Gainesville (FL) Health and Fitness Centers (GHFC), says club owners can increase non-dues revenue by providing members with an experience at the club that they cannot get in other clubs. Revenue from small group training at GHFC grew to about $300,000 in 2008 from $50,000 in 2007.

Rick Beusman, president of Saw Mill Sports Management, Mount Kisco, NY, oversees four Saw Mill Clubs. Beusman says 45 to 50 percent of gross revenue at his most successful club comes from non-dues revenue. Most of the non-dues revenue comes from the club's established member base, as opposed to new members or nonmembers, he says.

In this tough economy, Beusman says Saw Mill is looking to maintain non-dues revenue rather than increase it.

"Anybody who is maintaining non-dues revenue is doing a heck of a job," Beusman says. "Increasing it would be outstanding."

Leasing space to complimentary businesses, such as a chiropractor, a massage therapist or even a nail salon, is another way clubs can increase non-dues revenue. In addition to leasing space to a nail salon, Beusman has contracted out the operation of the pro shops, snack bars and other services at his Saw Mill clubs.

"The upside is I don't need the skill sets to run a variety of businesses that I don't know well," Beusman says. "But you have to be very successful as to who you allow to be a vendor. They have to have the same dedication to customer service as you do. We are very particular about who we allow to have access to our most trusted asset — our members."

Cindy Curley, general manager of Orchard Hills Athletic Club in Lancaster, MA, says her club increased non-dues revenue by $100,000 by leasing space in her 75,000-square-foot club to complimentary businesses. One of those businesses is a physical therapy clinic, which is contracted with a local hospital.

The Dedham Health and Athletic Complex in Dedham, MA, has put as much emphasis on the "health" portion of the complex as the "athletic" portion. The club partners with a local hospital and a local diabetes center and has affiliations with other medical centers in the area.

Dedham has a 60/60 ($60 for 60 days) physician referral exercise program. The 60/60 program is for people who are sedentary or have specific health issues, such as diabetes, high blood pressure, heart disease or weight management problems. The medical services at Dedham also include orthopedics, X-ray and MRI machines.

Children's programs are another way to increase non-dues revenue, several club operators say. The Weymouth Club in Weymouth, MA, put in a 12,000-square-foot kids center for children up to 15 years old. The kids center, called the Energy Center, includes rock climbing, arts and crafts and a dance studio.

Jeff Linn, the assistant executive director of The Weymouth Club, says his club has added 300 family memberships because of the Energy Center, resulting in about $265,000 in kids programming revenue. The Weymouth Club also produces about $600,000 from swim lessons and aquatics programs, Linn says.

Midtown Athletic Clubs has experienced an increase in children taking tennis lessons, Schwartz says. He says that the increase in this ancillary revenue source is a sign that members with children want their kids to enjoy the club experience as much as they do.

"When people make decisions to cut back on expenses, they form — either consciously or unconsciously — a hierarchy of priorities," Schwartz says. "The clubs' best defense against the recession's impact against attrition at any time is to involve the member in as many club activities at a significant level as possible. The more significant the involvement, the higher that item will be on the hierarchy of what is to be retained in a recessionary period — or any period."

Linn also is a proponent of marketing nonmember programming through the club's Web site, including tutoring for children, which has been successful, and pre-choreographed group exercise programming.

However, at least one club operator cautioned about trying too many new non-dues programs at this time.

"I think it's a good time to stick to what you do best and not get involved in trying to develop a lot of new stuff," Cirulli says. "I believe now is the time to make sure we're doing all the basics really well."

Still, many veteran club operators agree that non-dues programs are a valuable way to keep members happy, attract nonmembers and earn additional revenue from the people who truly value the club.